TAX PENALTIES for mis-declaration

  • Big changes from 6th April 2009
  • Personal liability for company directors
  • New system very judgemental
  • Possibility of Suspended Penalties
  • Applies to all types of taxation

The new penalty regime will apply to returns submitted after 1st April 2009. For companies it will apply to returns of profits of accounting periods commencing on or after 1st April 2008. It will apply to PAYE returns for the year commencing 6th April 2008 and subsequent years, and for contractors using the Construction Industry scheme for periods beginning on or after 6th March 2009. As regards VAT returns it will apply to Annual Returns for periods beginning on 1st April 2008 and later, quarterly returns for periods beginning on or after 1st January 2009 and monthly returns beginning on or after 1st March 2009. No penalties will be charged where the taxpayer has taken reasonable care. HMRC states that reasonable care varies according to the person, the circumstances, and their abilities. If, after examining all the facts, no penalty will be charged if the understatement is insignificant when compared with the taxpayers overall liability for the period. All other penalties are geared to a scale according to whether the error was careless, deliberate but not concealed, or deliberate and concealed. The table below shows the range of penalties.

tax penalties rates table

Disclosure is the key to obtaining the maximum discount. You must tell HMRC about the error or omission before HMRC discovers it. The full reduction in penalty will only be given where there is maximum cooperation with HMRC in calculating and correcting the inaccuracy. If you do not tell HMRC about the error or omission until after they have contacted you to arrange a compliance check your disclosure will not qualify to be treated as unprompted.

HMRC may suspend a penalty if they believe that doing so would improve the chances of the taxpayer not offending in future. HMRC will normally impose conditions to any suspension, and they may cancel the penalty if they are satisfied that all the conditions have been met.

Some penalties will be higher than in the past, particularly at the lower end of the scale. The minimum penalties will increase the overall level of penalties. The penalty regime applies equally to both all taxes including VAT.

Directors may also be held to be personally liable for deliberate inaccuracy. This is more likely to be applied where an individual gained from the inaccuracy.


  • Always try to persuade HMRC to suspend a penalty.
  • Disclose immediately.
  • Business owners should review their systems to minimise the possibility of errors or omissions.